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Coinciding with the recent increase in interest rates, an analysis by industry
specialists Plimsoll Publishing has looked at how high levels of debt are
impacting on the financial health of the top 260 Debt Collection Agencies.
The research found that 96 of the 260 companies analysed are in more debt now
than they have been in the last four years.
David Pattison, head of research at Plimsoll, commented. “We are always
surprised how no one at these companies seems to realise their debts are rising
and the effect it’s having on the overall financial strength of the company.
"Unfortunately it’s not something they tend to measure until it’s too late. Our
analysis spots these problems earlier”.
The analysis points to the 52 companies amongst the 96 where the debts are
already impacting on their business and their competitiveness.
Warning signs are often present up to 2 years before the debt problem becomes
serious.
If debts are allowed to go unchecked, any disturbance to the business could end
in disaster.
Long term debt
Companies tend to swap short term debt for long term debt. This has little
effect on the companies overall financial strength, particularly if the debts
keep rising.
It’s often a sign that the banks are concerned and are looking for more
security. Eight such companies are named in the Plimsoll analysis.
Profitability
As the debt increases the company’s profitability will start to erode.
Interest payments can in extreme cases, absorb all the profits. With rates
rising, this will put further pressure on profitability.
For 2 debt collection agencies companies, high interest payments alone have
already tipped them into loss.
Growth
As this starts to take effect the company will push for extra growth. This puts
further pressure on profitability, requiring extra working capital which frankly
just encourages even more debt.
At the 96 companies with high debts growth was good for 15 companies, seeing
sales increase in the year.
The full publication contains an individual profile for each of the largest 260
debt collection agencies companies.
It simplifies the key performance measures and uses a series of graphs to plot
load lines. These conclusive charts give both non-financial and financial
readers a visual summary of each of the companies in the market.
Copies of the analysis are available for £350 by calling 01642 626400,
or email c.sherwood@plimsoll.co.uk .
Readers of Credit Control Journal can request a 5% discount.
Source:
Credit
Control Journal
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